LEASES

3 Months Ended

Mar. 31, 2023

The Company has operating leases for office and laboratory space in the borough of Manhattan in New York, New York, in Cambridge, Massachusetts and in Somerville, Massachusetts, which expire in 2026, 2028, and 2032, respectively.

In March 2022, the Company entered into a facility lease in San Diego, California (the “San Diego Lease”) with Torrey Pines Science Center Limited Partnership for approximately 5,200 square feet of laboratory and office space. The term of the San Diego Lease was 62 months and the lease commencement date was April 19, 2022. The Company recorded a $1.7 million right of use (“ROU’) asset and a $1.7 million lease liability for the San Diego Lease.

During 2022, the Company decided to consolidate its research and development efforts in Cambridge, Massachusetts, and the Company determined to sublease the San Diego laboratory and office space. On January 31, 2023, the Company terminated its lease in San Diego, California pursuant to a lease termination agreement entered into with the lessor in November 2022 and amended in December 2022. The Company paid a $0.1 million lease termination fee in January 2023. The lease termination was accounted for as a modification because the Company did not contemporaneously terminate the lease when it entered into the lease termination agreement on November 30, 2022 (the “Modification Date”) and had a continued right-of-use of the facility through January 31, 2023. As a result, on the Modification Date, the Company remeasured the remaining lease payments, including the $0.1 million termination fee, and reduced the lease liability the Company had on its balance sheet on the Modification Date by approximately $1.4 million to the present value of the remeasured lease liability of approximately $0.2 million and reduced the ROU asset by approximately $0.8 million to zero. As of March 31, 2023, the Company had no remaining lease liabilities associated with this lease.

In October 2022, the Company entered into the Sublease with E.R. Squibb & Sons, L.L.C., a subsidiary of Bristol-Myers Squibb Company (“Sublessor”), for office, laboratory and research and development space (the “Premises”). The Premises consist of approximately 45,500 square feet on the ninth floor of a building currently under construction located in Somerville, Massachusetts.

Payments of the Sublease rent commence on the date that is the earlier of (i) the date that the Company commences business operations from the Premises and (ii) the one-year anniversary of the date that Sublessor obtained the primary landlord’s consent for the Sublease, which was November 29, 2022 (such applicable date, the “Rent Commencement Date”). The Sublease has a term of 10 years from the Rent Commencement Date (the “Term”), subject to a five-year extension in accordance with the terms of the Sublease.

Pursuant to the Sublease, the Company paid the Sublessor a security deposit in the form of a letter of credit in the amount of approximately $4.1 million. Provided there are no events of default by the Company under the Sublease, the letter of credit will be reduced on an incremental basis throughout the Term. Pursuant to the Sublease, the Company has agreed to pay base rent of approximately $0.5 million per month during the first year of the Term, increasing on an incremental basis each subsequent year of the Term for a total of approximately $63.0 million in base rental payments, as well as parking and traditional lease expenses, including certain taxes, operating expenses and utilities.

The Sublessor has agreed to provide the Company with a tenant improvement allowance of $190 per rentable square foot, or $8.6 million. Tenant improvements to the Premises in excess of this amount, if any, will be at the Company’s own cost. As of March 31, 2023, the Premises had not been made available for the Company to begin the construction of the tenant improvements. It is expected that the Premises will be made available to begin the construction during the second quarter of 2023, and it is anticipated that the construction will be substantially complete during the fourth quarter of 2023. As a result, the commencement date of the Sublease did not occur as of March 31, 2023, and accordingly, the Company did not recognize a lease liability and corresponding ROU asset for the Sublease as of March 31, 2023.

As of March 31, 2023, the Company had incurred approximately $0.7 million in costs in connection with the Sublease, which consisted of approximately $0.6 million for the architect to design the tenant improvements to the Premises and for a project manager to manage the construction of the tenant improvements as well as approximately $0.1 million in bank fees related to the issuance of the letter of credit discussed above. These costs are recorded in other assets in the accompanying condensed consolidated balance sheet as of March 31, 2023.

For the three months ended March 31, 2023 and 2022, the net operating lease expenses were as follows (in thousands):

	Three months ended
	2023			2022
Operating lease expense	$	68		$	186
Sublease income		(21	)		(21	)
Variable lease expense		5			3
Total lease expense	$	52		$	168

The tables below show the beginning balances of the operating ROU assets and lease liabilities as of January 1, 2023 and the ending balances as of March 31, 2023, including the changes during the period (in thousands).

	Operating Lease ROU Assets
Operating lease ROU assets at January 1, 2023	$	1,030
Amortization of operating lease ROU assets		(41	)
Operating lease ROU assets at March 31, 2023	$	989

	Operating Lease Liabilities
Operating lease liabilities at January 1, 2023	$	1,182
Principal payments on operating lease liabilties		(173	)
Operating lease liabilities at March 31, 2023		1,009
Less non-current portion		841
Current portion at March 31, 2023	$	168

As of March 31, 2023, the Company’s operating leases had a weighted-average remaining life of 4.8 years with a weighted-average discount rate of 10.23%. The maturities of the operating lease liabilities are as follows (in thousands):

	As of March 31, 2023
2023	$	203
2024		272
2025		274
2026		267
2027		163
Thereafter		82
Total payments		1,261
Less imputed interest		(252	)
Total operating lease liabilities	$	1,009

The weighted-average remaining life, the weighted-average discount rate and the maturities of the operating lease liabilities shown above do not include the Sublease, as the commencement date of the Sublease had not begun as of March 31, 2023, and therefore, the Company did not record a corresponding lease liability and ROU asset.